Thursday, May 6, 2010

Will Utica Shale be Next Gold Rush?

The Detroit Free Press reported that a natural gas lease sale earlier this week netted the state of Michigan an unexpected $1,500 per acre in lease bonuses (minimum lease bonus bids were $13/acre - but that was negotiable).  The live auction yielded proceeds of $178 million, by far a record, shocking all participants. 

The gold rush mentality was caused by a single well drilled into the Utica Shale in the northwest portion of the lower peninsula of the state.  (There may be some nomenclature issues here, as the EIA calls the shale under Michigan the Antrim, while the Utica is generally understood to run to the east in Canada.)  No matter what it is called, we may be looking at yet another shale basin vying for the attention of domestic producers. 

The northwest portion of the LP has seen gas exploration in the past, but the Utica/Antrim formation has not been tapped before, so there are many unknowns.  But clearly not enough unknowns to prevent some bidders from spending like drunk sailors.  For the sake of Michigan, I hope the state will be the beneficiary of a natural gas-induced economic boom. 

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